What expectations should be set when investing in an IPO this year?

Ask any cryptocurrency enthusiast about the idea of investing in IPOs, and they will probably tell you how great it is. Registering for a promising company’s IPO can bring both short and long-term profits for investors and companies alike.

Successful cryptocurrency traders (and investors) in India do not just learn how to buy cryptocurrency in India or sell them. They’re actively involved in investment opportunities such as equity stocks, equity mutual funds, bonds, debt mutual funds, IPOs, ICOs and ETFs.

In the past, IPO investments were typically only available for institutional and "high-net-worth" investors and brokers. Well, the tables have now turned. Retail and self-directed investors now have the opportunity to access what big investors access, including private capital raisings, listed placements, and IPOs. So if you are a casual investor who buys bitcoin in India, you can now benefit from India’s booming IPO market.

When these smart investors get involved in an IPO, they do not base their investment decisions on the potential wins only. They equally look at the risks attached to their decisions, factor in the expectations that should be set, and ultimately conduct deep research on the company and its project ideas.

The expectations IPO investors should set before handing out their funds for investment may vary based on the market and trends. There are, however, some general research frameworks that are always important.

What you should expect as an IPO investor can be categorized into two parts;

1. Expectations based on requirements to be met before joining an IPO opening

2. Expectations on upcoming IPOs and projects that may have massive upside potential

Expectations based on requirements for joining an IPO

1. The company should have strong brokers

You don’t want to select a company with not-so-strong brokers, as this could in itself be a serious red flag. Try to look for a company with a strong underwriter since they are much more careful and picky about the kind of companies they underwrite. This isn’t to say that the big investment banks are absolutely free from dud IPOs. But, in general, strong brokers are more likely to bring in a quality experience.

If you are selecting a smaller brokerage, it’s important that you exercise extra caution. This is because these small brokerages are often willing to underwrite any company – irrespective of their credibility. A typical example of a strong brokerage is Goldman Sachs (GS). Considering its reputation, it can afford to be a lot pickier and careful about the companies it underwrites.

2. Check its past records, including promoter and management background

The more you know about the company, the higher your chances of detecting any foul play. There have been lots of records of companies that, in the disguise of IPO investment, duped many unsuspecting investors out of their funds. Develop the habit of checking the past performance and past records of any company whose IPO you’ve shortlisted. This can go a long way in helping you better understand the company’s business model, how they were able to manage previous projects and your chances of success with such a company.

The company’s promoters as well should be experienced, efficient and competent in moving the company from where it is at the moment to where they want to be in the future (to achieve new heights). If you notice that a company has an unstable promoter group and management, you should avoid them. Frequently changing a company’s management is a major red flag since it can result in poor decision making, delayed actions, and a lack of trust between its investors.

3. Analyse key financial parameters for growth potential assessment

Attention to the financial health of a potential lPO company is important – irrespective of its size. When you analyze crucial financial data of the company you want to invest in, you should be able to get a feel for its financial health and other relevant information such as its growth capacity.

You will be able to project a company’s future more accurately with some relevant metrics. A good example is understanding a company’s debt-equity ratio. This information can help you establish how highly a company is leveraged. A high debt-equity ratio is often an indication of higher risk in a company.Ensure you check a company’s financial metrics before investing in an IPO

With this, you can decide whether or not to proceed with your investment plans. And if you will proceed, you can determine how much you are willing to stake. Similarly, you should analyze the potential company’s earnings per share (EPS), return on capital employed, cash flow, and other key financial metrics for upcoming IPOs and project. Avoid investing in any IPO if its financials (from the data) are not up to your expectations and its valuations are weak.

4. Valuation of the company

Although determining the valuation of a company might be difficult, it is yet the most important factor to consider as an investor before registering for an IPO. When you understand and analyze the listing gains of the potential company, you will get a great deal of information. But, this does not provide an accurate insight into the company’s valuation. What to do? Simply compare the performance of the company’s IPO stocks with that of its competitors. You will gain a basic yet essential understanding of the company’s valuation.

It’s raining IPOs in India this year. For some years now, the Indian IPO market has been booming. Every year, investors want to know what to expect from the IPO industry. And this year, India has got a great number of projects (and companies) waiting to receive investors. Here are some of them:

• Paytm
• MobiKwik
• Glenmark Lifesciences
• Rolex Rings
• Fincare Small Finance Bank

A contributing factor to India’s booming IPO market in recent times has been the Indian stock market’s resilience to the Covid-19 pandemic. More than 30 projects have already been listed online, with more coming to join the list. Market experts say that this year’s capital raises look likely to exceed the previous 2017/2018 $11.1 billion record.

Investing in an IPO requires investor research but it is a good way to diversify one’s investment portfolio. Even so, picking the right IPO can be challenging, as is knowing when to enter and exit an IPO. If you are sceptical about IPO investment, you could buy bitcoin in India and invest in cryptocurrencies instead.

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Editorial Note: This is a sponsored article. Opinions expressed are solely those of the sponsor and readers should conduct their own due diligence before taking any action based on information presented in this article.